Record keepers are racing to roll out adviser managed accounts in a bid to satisfy registered investment adviser firms clamoring to make the accounts available to their plan sponsor clients.
Voya Financial, Inc., and Milliman, Inc. are the latest record keepers to add the new type of managed account to their platforms, launching them in March. The two join Prudential Financial Inc., which announced its new adviser managed account or AMA in February, following similar rollouts over the past year by other record keepers, including John Hancock Retirement Plan Services LLC and Securian Financial Services Inc. Indeed, the number of record keepers offering what some call the "next-generation managed account" has been rising since the two earliest providers — Schwab Retirement Plan Services Inc. and Empower Retirement — introduced theirs in 2019, according to industry observers.
"We work with an awful lot of advisers, and they have an interest in providing that service to our mutual clients," said Jeff Cimini, Voya's Windsor-Conn.-based senior vice president of retirement product management, referring to the firm's new AMA.
Milliman's Kyle Hughes, principal and employee benefits administration national sales leader in Dallas, gives the same reason for the firm's recent launch of its AMA, saying it was "primarily due to the requests we were getting from the advisory firms that we partner with."
The emergence of adviser managed accounts comes as RIA firms look to take greater control of portfolio construction within defined contribution retirement plans and personalize what industry experts refer to as the "participant experience." Adviser managed accounts give advisers offering one-on-one participant consultations a good tool to engage with participants, allowing them to factor in additional participant information, such as outside assets, which help customize participant portfolios, according to industry observers.
The new platforms also complement adviser efforts to boost financial wellness offerings and participant advice services, Mr. Hughes and other experts said. "Traditionally a lot of these RIA firms were primarily focused at the plan level," Mr. Hughes said, referring to areas of traditional assistance, such as plan design and compliance. "Over the last five or six years, a lot of them have started getting more into participant advice."
RIA firms have sought to beef up their participant advice services as plan sponsors began shifting their attention to participant outcomes and getting employees to retire on time, industry observers said. Indeed, more than 95% of plan sponsors today offer some form of investment guidance or advisory service to participants, up from 84% in 2016, according to Callan LLC's 2020 defined contribution survey of 114 plan sponsors.
For RIA firms, the new AMA platforms were "a natural extension of their wellness and participant advice support that they've been offering to their clients," Mr. Hughes said.
Kris Straw, Atlanta-based senior vice president of corporate operations and chief financial officer of the not-for-profit Institute of Nuclear Power Operations, implemented an adviser managed account last July because the technology and analytics capabilities it offered helped create "a more tailored, customized asset allocation for participants."
"We saw that as value added to our participants," Mr. Straw said of the AMA offered through the plan’s RIA firm, CAPTRUST Financial Advisors LLC, and record keeper Charles Schwab Corp.
Since its introduction, the AMA has accumulated $69 million in assets or 55% of the $126 million in the organization's 401(k) plan. About 72% of the plan's 450 participants are enrolled in the AMA.
Before implementing an AMA, plan sponsors such as the Institute of Nuclear Power Operations, must determine whether an AMA is appropriate for their plan, and if so, evaluate the options available to them. They must also monitor the AMA provider on an ongoing basis as they would any other service provider.
Empower Retirement has seen assets in its AMA grow as more adviser firms made it available to their plan sponsor clients. As of Feb. 28, some 335 retirement plans had incorporated the AMA, notching $1.5 billion in assets since its launch in March 2019, according to Tina Wilson, senior vice president and chief product officer at Empower in Denver.
"It's a great way for us to demonstrate our commitment both to participant advice, which we care deeply about, and helping our advisers grow and manage their businesses," she said.
Empower's AMA is available to 11 adviser firms with four more in various stages of the pipeline, Ms. Wilson said.
Unlike traditional managed accounts, the new adviser-led accounts allow RIA firms to take control of the investment decisions made inside the managed accounts. The firms — not the record keepers — are responsible for the portfolio construction and are the named fiduciary adviser.
The new accounts are also notable for what they allow the individual advisers to do. With an adviser managed account, advisers having one-on-one meetings with participants are able to customize participant inputs "so that it best reflects participant needs," Empower's Ms. Wilson said.
Advisers, for example, can adjust a participant's retirement age and life expectancy and can add in assets that they have outside the plan that are earmarked for retirement, such as a spouse's or partner's retirement and pension accounts.
"There are defaults in the managed account program for all of these things, but a role that the adviser can play is to truly sit with that individual and change those inputs or add that additional information, which makes the experience far more personalized for them," Ms. Wilson said.
Adviser managed accounts also allow advisers to utilize investment funds that are outside a retirement plan's core menu. They might, for example, add real estate investment trusts, commodities or other investments that "the advisers as part of their overall due diligence would deem appropriate for an asset allocation," said Martin Schmidt, principal of defined contribution consultant MAS Advisors and a director of the Institutional Retirement Income Council in Chicago.
Advisers would be able to choose from a pre-selected list of managed account-only funds approved by the plan sponsor, said Mr. Schmidt, explaining that the funds serve as additional "diversifiers."
The additional investments give participants options that they wouldn't be able to elect on their own, added Joe DeBello, an Orlando, Fla.-based retirement plan consultant with OneDigital who uses adviser managed accounts with his plan sponsor clients.
"We're trying to bring this level of customization on portfolio management and advice to plan participants who otherwise might not have the means to access it outside the plan," he said. "By doing it in the plan, it's done under a fiduciary umbrella, and it's done at a much more cost-competitive price than they would get going out in the retail space."
Participants, for example, have access to off-menu custom collective investment trusts through the adviser managed accounts available at OneDigital, Mr. DeBello said. Mr. DeBello estimates that less than 10% of the roughly 150 plan sponsor clients he and his team service use an adviser managed account.
The fees for the adviser managed accounts vary depending on the RIA firm's business model but generally are comparable to traditional managed accounts, which average about 40 basis points, according to record keepers.
"It's pretty much on par with the current kind of managed account offerings out there today," Milliman's Mr. Hughes said.
Adviser managed accounts are relatively new and account for a fraction of overall managed accounts, which hit more than $400 billion at the end of 2020, according to Shawn O'Brien, a Boston-based senior analyst at Cerulli Associates.
Even though Cerulli has not yet sized how much is in AMAs, Mr. O'Brien and other industry experts believe they'll pick up steam.
"I anticipate we'll see more activity in the AMA space – whether that's new program launches or new partnerships between RIA firms, managed account providers, and record keepers – in the coming months and years," Mr. O'Brien said.
OneDigital's Mr. DeBello, too, is bullish. His servicing team has less than $3 million in adviser managed accounts but he sees assets rising as more record keepers make AMAs available.
"We do anticipate that there will be some uptick on this in terms of adoption rates by plan sponsors given that these are just now becoming available on record-keeping platforms," he said.
